Ya don’t say… you mean not checking to see if people really make as much as they claim and giving loans to people with terrible credit isn’t a good idea?

By now it is common knowledge that the global financial meltdown, fuelled by the housing crash and now propelled by a smashed economy and unemployment was the direct result of a huge bubble in housing and real estate values that was caused by easy credit. Leave it to the U.S. government to spend untold millions of dollars to have several days of hearings two years after the sub-prime meltdown to sit around and talk about it…

I guess documenting testimony from experts will give the powers that be something to stand on as they re-build, over regulate and totally screw up our mortgage industry.

It will be interesting to see the changes ahead in the way mortgages are sold, under written and securitized. I’ll bet we don’t like the end result.

Thursday was day two of the Financial Crisis Inquiry Commission hearings, aimed at uncovering the root causes of the worst economic recession since the Great Depression.

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The witness list included financial regulators at both the federal and state level, who confessed that supervision and oversight was lacking and failed to head off the financial system’s near-meltdown.

FDIC Chairman Sheila Bair took top billing at the hearing. “Not only did market discipline fail to prevent the excesses of the last few years, but the regulatory system also failed in its responsibilities,” Bair said.

Bair told the commission that record profitability at Wall Street firms worked to shield them from regulatory second-guessing about how the money was coming in.

She also said that at the onset of the crisis, “It’s been estimated that half of all financial services were conducted in institutions that were not subject to prudential regulation and supervision. Products and practices that originated within the shadow banking system have proven particularly troublesome.”

Mary Shapiro, chairman of the Securities and Exchange Commission (SEC), told the inquiry committee that there were many interconnected causes of the financial crisis. At the top of her list was “the rise of mortgage securitization and its unintended facilitation of weaker underwriting standards by originators and excessive reliance on credit ratings by investors.”

Shapiro said her organization is currently evaluating investment firms’ practices related to subprime mortgage-backed securities and collateralized debt obligations in the real estate bubble.

“We are seeking to determine whether investors were provided accurate, relevant and necessary information, or misled in some manner,” Schapiro said.

According to state regulators’ testimony, it was the supervision at the federal level in Washington that obstructed their efforts to avert financial catastrophe, but they too echoed Shapiro’s sentiments that it all began with the mortgage industry.

Illinois Attorney General Lisa Madigan said the mortgage lending industry had “careened out of control” in the years preceding the financial crisis. “The housing bubble may have officially burst in late 2007, but those of us on the frontlines of consumer protection have seen predatory lending practices since the late 1990s,” Madigan said.

Phil Angelides, chairman of the congressionally-appointed commission and a former California treasurer said he will also be asking former Federal Reserve chairman Alan Greenspan, current Fed chairman Ben Bernanke, and former chairmen of the SEC, including Christopher Cox to testify before the panel.

“We’ll be asking them to come before us because they were the watchers, and I will assure you, we will be as probing of the regulators who were on the scene at the time as we will be of people in the private sector,” Angelides said.

Angelides’ committee is modeled after the Pecora Commission, which probed Wall Street’s 1929 crash and led to the creation of the SEC and other financial reforms of the time.

On Wednesday, Angelides and his fellow panel members heard testimony from the heads of four of the nation’s largest financial firms on their business practices leading up to the crisis and their miscalculations of the severity of the meltdown.